Declining German Expectations Bearish For EUR

Declining German business and consumer expectations are bearish for euro. Will the EUR/USD continue declining?

GfK report yesterday showed consumer climate index slipped to 10.8 in February from 11.0, and the Ifo survey last week indicated German businesses’ economic conditions expectations declined in February. Particularly, the business climate index fell to 115.4 points in February, below the 117.0 points expected, while the expectations index fell to 105.4 from 108.3. The European Central Bank’s January meeting minutes showed officials thought it was “premature” to change ECB’s forward guidance as inflation remained too far from the ECB’s target of just below 2%. And this Monday European Central Bank president Mario Draghi said euro-zone’s economy still needs the stimulus of continuing bond purchases program scheduled to last at least until September this year. Declining German business expectations and ECB policy makers’ assessment euro-zone still needs monetary stimulus are bearish for euro.

EUR/USD Daily Chart

On the daily timeframe, EURUSD is retracing after it hit 4-year high two weeks ago.

  • The Donchian channel indicates downtrend: it is tilted down.
  • The MACD indicator is above the signal line and the gap is narrowing, which is a bearish signal.
  • The Parabolic indicator gives a sell signal.
  • The stochastic oscillator has breached into the oversold zone, this is a bullish signal.

We believe the bearish momentum will continue after the price breaches the below the lower Donchian boundary at 1.2187. A price point below that level can be used as an entry point for a pending order to sell. The stop loss can be placed above the upper Donchian bound at 1.2554. After placing the pending order the stop loss is to be moved every day to the next fractal high, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop-loss level (1.2554) without reaching the order we recommend cancelling the order: the market sustains internal changes which were not taken into account.

Technical Analysis SummaryPosition – SellSell stop – Below 1.2187Stop loss – Above 1.2554

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